Can e-commerce in Healthcare Succeed? Developments in Mail Order and Internet Pharmacy in Europe

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1 Can e-commerce in Healthcare Succeed? Developments in Mail Order and Internet Pharmacy in Europe By James W Dudley June 2012 Summary Mail order and Internet pharmacies have been a success in the USA and take around a quarter of the non-institutional healthcare market. In Europe while e-commerce in healthcare has been around since 1998, its progress as a pharmacy channel has been slow and patchy across the region. But is this about to change? A European Court ruling in late 2003 in favour of the Dutch Internet pharmacy DocMorris that was fighting courts in Germany for the right to supply consumers with medicines by mail order opened the doors for e-commerce in medical supply across the European Union 1. While some States have embraced the new pharmacy channel, others have been reluctant to do so. Hence Internet and mail order pharmacies in Europe have evolved into different forms in response to the different regulatory environments in each EU State. This article looks at the evolution of mail order and Internet pharmacy in Europe, explores the way different models in e-commerce have emerged and compares these to developments in the USA. Can e-commerce in Healthcare Succeed? Developments in Mail Order and Internet Pharmacy in Europe Mail Order and Internet Pharmacies have grown out of the online extension of discount home shopping but increasingly American retailers are morphing the concept into a multi-channel shopping experience that presents both threats and opportunities to healthcare suppliers. In Europe e-commerce in healthcare has been around since 1998, but only began to take off in a big way in This was for the large part due to a European Court ruling in late 2003 in favour of the Dutch Internet pharmacy DocMorris. Having been banned by Landgericht Frankfurt am Main, a German Court, from shipping prescription and non-prescription medicines direct to patients in Germany the company successfully appealed to the European Court of Justice. The ECJ ruling eliminated opposition by EU Member States to mail order and Internet pharmacy at least for nonprescription medicines. While some States have embraced the new pharmacy channel, others have been reluctant to do so. Hence Internet and mail order pharmacies in Europe have evolved into different forms in response to the different regulatory environments in each EU State. Thus, despite the relative success of Internet and mail order as a retail pharmacy channel in the USA development in much of Europe has been dogged by regulatory conservatism. As a result progress has been very patchy across the Region. Resistance to Internet and mail order expansion is based on the objections by key interest groups at the heart of which are the perceptions by pharmacists and manufacturers that it presents as a price cutting threat and by regulators as a channel presenting safety risks to patients. 1

2 A 17 country online pharmacy study representing 67% of Europe s Internet users published by James Dudley Management shows fourteen out of the seventeen countries in the study permit Internet and mail order transactions for non-prescription medicines under domestic law. Only Denmark, Germany, the Netherlands, Norway, Sweden, Switzerland and the United Kingdom allow prescription only medicines to be dispensed by online pharmacies. Although Finland is expected to be included on the list in 2013 when e-prescribing is introduced. In three European States: Austria, France and Italy transactions are still technically illegal but are permitted under EU law for non-prescription medicines only. Figure 1: Mail Order and Internet Pharmacy Regulatory Status 17 Country Study 2012 Permitted Permitted Mail Permitted Mail Country % Internet Users Europe Order and Internet Pharmacy OTC Medicines Order and Internet Pharmacy Prescription Only Austria 1.30% No No Yes Belgium 1.70% Yes No Czech Republic 1.40% Yes No Denmark 1.00% Yes Yes Finland 0.90% Yes Expected 2013 France 9.50% No No Yes Germany 13.70% Yes Yes Hungary 1.30% Yes No Italy 6.30% No No Yes Netherlands 3.10% Yes Yes Norway 0.90% Yes Yes Poland 4.70% Yes No Slovakia 0.90% Yes No Spain 6.10% Yes No Sweden 1.80% Yes Yes Switzerland* 1.30% Yes Yes United Kingdom 10.80% Yes Yes Total 17 Countries under Study 66.7% *Restricted to companies providing medical supervision Mail Order and Internet Pharmacy OTC under EU Law only Austria is unique in that it permits mail order for non-prescription medicines from other EU States in compliance with EU regulations on a very restricted basis but not from internal pharmacies. This has led to a situation where the Swiss company Zur Rose is the leading online consumer healthcare provider in Austria through its EU based subsidiary in the Czech Republic. Zur Rose also provides the druggist chain dm with a pharmacy pick-up service. Traditionally mail order and Internet pharmacies were seen as being synonymous with so called pureplay mail order and online pharmacies. Pureplay retailers are basically stand-alone Internet enabled mail order pharmacies that deliver directly to their customers by post or courier. Even so, companies have to conform to the legal requirements of their domestic governments by having a retail pharmacy as a home base. Pureplay retailers operate in much the same way as Amazon in structure and marketing. They are also heavily reliant on affiliate promotion i.e. banners on other web sites to generate traffic. However, pureplay retail enterprises now have to compete with retail chains which increasingly can provide shoppers with a multi-channel experience. While mail order pharmacies have shown considerable growth in terms of sales and market share in the USA this has largely been achieved through prescription delivery of relatively expensive medicines with attractive discounts to patients with chronic conditions. Convenience and confidentiality also play a part. This is especially the case with speciality pharmacies providing solutions to patients in long term care. The development of the prescription based model in the USA is in contrast to the European model which is still very much led by non-prescription demand.

3 Figure 2: Retail Share of US Pharmaceutical Market by Channel 2011 Compared to the patchy impact in Europe nearly a quarter of retail pharmacy turnover is delivered by mail order and Internet pharmacy. The growth of mail order in the USA has been largely driven by Pharmacy Benefits Manager (PBMs) networks. These organizations provide patient services for health insurance providers for which there is no equivalent in Europe. The largest PBMs either own or integrate selected mail order and Internet pharmacies into their customer service networks. Yet pharmacy chains in the USA have responded by not only developing online services but by integrating them into their shopping experience. Recent developments at Walgreen s are a case in point. Walgreens is the largest drugstore chain in the US and commands some 19% share of the retail pharmacy market and 20.1% of prescriptions in The retailer serves nearly 6 million customers a day and generated sales of $72 billion in 2011 through 7,818 drugstores in all 50 states, the District of Columbia and Puerto Rico. Prescription drugs make up 65% of net sales, while non-prescription drugs represent 10% of net sales. General merchandise makes up the balance. According to Walgreens multi-channel shoppers are estimated to be three times more valuable than a single-channel shopper. To capture this target audience Walgreens has developed and expanded a multi-channel strategy through heavy investment in e-commerce and mobile technology. The new model has enabled the company to leverage its brick-and-mortar locations with convenient, sophisticated online options. Another aspect of adapting to new consumer trends is Walgreens response to consumer s ownership and use of mobile and smart phone technology. Eighty- two percent of American adults own a mobile phone and some 40% of smart phone and tablet users have downloaded a health-and-wellness application. According to a Consumer Health Information Corporation study, consumers want to use health apps to keep track of health information (48.5%), help manage diseases or drugs (58.4%), and to gain information (91%). Moreover, 20% of consumers would most prefer to receive a medication reminder via an app compared to existing communication methods.

4 Mobile device users can also access Walgreens through the company s on-site pharmacies in hospitals, worksite clinics, call centres, and social media sites, such as Facebook and Twitter. Sams Club, Wal-Mart s member only warehouse chain, serves 47 million Americans from 611 locations. The chain recently introduced two critical dimensions to Sam's Club's health-and-wellness platform. These are prevention and solutions. In support of these Sam's Club's has adopted a number of interesting uses of apps for mobiles and tablets into its health and wellness programme. All its house healthcare brands have QR codes 2 printed on the labels. Shoppers can scan these with their smart phones to pick up information on the product. According to Sam s Club, one in five shoppers who scan a product s QR code makes a purchase. However, unlike the USA the full integration of technology into a multi-channel strategy to the level of sophistication of pioneers such as Walgreen s is not yet apparent anywhere in Europe. Boots (Alliance Boots) in the United Kingdom is probably ahead of other European pharmacy retailers in its level of integration of its online services into its pharmacies especially with its very successful order online collect in store promotions. The other major pharmacy chains in Britain provide online services including repeat prescription service but not to the extent of those provided by Boots. In Poland Apteki dbam zdrowie (I care for my Health) chain integrates the online pharmacy Doz.pl. into its retail offer. The chain is owned by Poland s largest pharmaceutical distributor Pelion (formerly Polska Grupa Farmaceutyczna) Apteki dbam zdrowie claims that Doz.pl is the largest online pharmacy and information site in Poland with almost 3 million unique visitors placing100,000 orders monthly during Pelion describes it as a second-generation portal combining the function of an e-pharmacy with a health and drug encyclopaedia. Uniquely it is based on a model combining Internet sales with a nationwide pharmacy chain. The model enables customers to place orders online and collect the ordered goods at one of the 2,020 pharmacies participating in the I Care for My Health programme. As there is no delivery charge, the portal offers the lowest prices on the market. An interesting development is the growth of online consultation clinics. These are either stand alone services that feed prescription and diagnostic volumes to pureplay online providers or in the case of the United Kingdom form part of the retail offer for major pharmacy chains. These clinics offer online physician consultation and are found in the United Kingdom and the Netherlands in Europe. Online medical consultation also plays an important role Switzerland in that it is a condition of a license to operate a mail order or Internet pharmacy. Online consultation pharmacies are also prevalent in the USA. Having a GP or clinic service gives an Internet pharmacy the advantage of being able to generate prescriptions for prescription only medicines without the patient having to make a personal visit a doctor. In the United Kingdom a number of online pharmacies link up with online clinics where it is legal for doctors to carry out online consultations and issue prescriptions. The doctors have to be registered with the Care Quality Commission. Online clinics only prescribe a narrow range of medicines and do not replace patients GPs. There are various ways that doctors carry out the online consultations but very often it is done almost entirely by questionnaire. As a general rule patients pay one fee which includes the costs of the consultation and prescription and the price of the medicine. For example Pharmacy2U, one of the leading pureplay pharmacies in the United Kingdom, has an online consultation service provided by PrivateMeds and covers erectile dysfunction, hair loss, smoking cessation and flu. 2 abbreviated from Quick Response Code

5 Integration of online clinics into the pharmacy retail offer is a major development. Lloydspharmacy launched its online doctor service, offering private prescriptions in conjunction with internet surgery DrThom, in 2008 a business it subsequently acquired. In the summer of 2010 Boots launched an online Prescriptions Direct service for treatments ranging from smoking cessation to menstrual cycle management. Figure 3: Examples of Legally Operating Online Doctor Consultation Services in Europe 2012 Company Location Pharmacy Geographical Reach Partner/Affiliate Dokteronline Netherlands Pharmacy2U EU Zur Rose Switzerland Zur Rose Switzerland Mediservice Switzerland Mediservice (Specialises Switzerland (Galenica) in providing services for patients requiring specialist care) PrivateMeds United Kingdom Pharmacy2U United Kingdom Also European States and Australia DrThom (Lloyds/Celesio) United Kingdom Lloydspharmacy United Kingdom Dr Fox United Kingdom The Park Road Pharmacy Ltd United Kingdom HealthExpress United Kingdom Registered as a pharmacy in the UK Boots* Prescriptions Direct (Boots/Alliance Boots) EU United Kingdom EU United Kingdom Boots the Chemist United Kingdom *Consultation in-store maybe required Germany is the leading market in Europe for pureplay mail order and Internet pharmacies. This is probably an accident of history in that the market evolved from cross border distance marketing pioneered by the Dutch company DocMorris. Furthermore, unlike the United Kingdom the absence of wholly owned pharmacy chains in Germany has not provided the brand support for integrating online and traditional pharmacy. The success of pureplay retailers is privacy, convenience and above all discounting. Since 2004 mail order and Internet pharmacies have been licensed to operate in Germany. The combined sales of some 25 pureplay mail order ventures represent some 3.5% of the total pharmacy sales and around12% of non-prescription healthcare business. 57% of mail order sales are achieved through the high discounts on non-prescription healthcare products. Top sellers include slimming aids, circulation products, tonics and topical pain relievers. While the statutory health insurers in Germany, the Krankenkassen, offer their members mail order for their prescriptions and homecare needs, only 27% of mail order and Internet pharmacy turnover is for prescription only medicines. Based on the estimated sales of each company the top four mail order pharmacies in Germany these represent just under two thirds of the mail order market. Among the top companies the overall leader is DocMorris (Celesio) with 20.2% of sales. Other leading businesses are Sanicare with 16.6%share and EuropaApotheek (Medco) with14.7%.

6 Figure 4: Brand Owner % Share of the Market Mail Order Pharmacy - Germany A major development is the alignment of pureplay pharmacies to mass market retailers Austria and Germany. Druggist chains are not permitted to own pharmacies in Austria or Germany. Leading chains in Germany and one major chain in Austria have linked up to mail order and Internet pharmacies to provide an ordering service for prescription and non-prescription medicines by which consumers make an order online at home or at a booth in-store for collection later. Online ordering for pick-up in non-pharmacy outlets is a model initially developed by the druggist chain dm in Germany in partnership with Europa Apotheek. dm has since set up a similar partnership in Austria with Zur Rose. Other major retail druggist chains in Germany with mail order and Internet pharmacy partners are shown in the table below. Figure 3: Retail Chain Partnerships with Mail order and Internet Pharmacy Partners Retail Chain dm Germany dm Austria Germany Schlecker Germany Rossmann Germany Müller Drogeriemarkt Germany Netto Germany Coop Plus Germany Mail order and Internet Pharmacy Partner Europa Apotheek Zur Rose Vitalsana Deutsche Internet Apotheke Mycare Volsversand (CZ) Zur Rose Despite the success of DocMorris in Germany its owner Celesio recently decided to sell off its mail order business. This raised the question of whether the pureplay model is sustainable. The company says it is. Celesio, one of Europe s leading pharmaceutical distributors, acquired DocMorris in May 2007 and this was to do with acquiring the brand and a new franchise concept being developed by the company rather than access to the growing Internet opportunity.. The move into mail order was not supported by pharmacy customers who purchased from Celesio s German pharmaceutical wholesaler Gehe. This led to considerable bad feeling among German pharmacists leading to a loss of market share for the wholesaler and was the reason given by Celesio for the disposal.

7 The move was not supported pharmacy customers who purchased from Celesio s pharmaceutical wholesaler Gehe. This led to considerable bad feeling among German pharmacists and a loss of market share for the wholesaler. In March 2012 Celesio announced that it had put the DocMorris mail order business up for sale. The future of mail order and Internet pharmacy is likely to see the pureplay model gradually merging into the retail offer of pharmacy chains. This will occur more rapidly where wholly owned and franchise concept chains exist and this is simply because brand owners are in a position to exploit the advantages of creating a multi-channel shopping experience. In those markets where wholly owned chains do not exist there is the opportunity for virtual chains and voluntary groups to introduce online elements into their retail offerings. The example of the relatively benign online network involving all the voluntary groups in Denmark is a case in point. The Pureplay model will remain dominant in Germany. This said, the major players have aligned to the main druggist chains in Germany. The Author James W Dudley James Dudley is one of Europe's leading strategic marketing thinkers and an influential contributor to a number of ground breaking marketing initiatives in Europe s consumer health markets. He is a well known speaker and is the author of a number of highly important, strategic marketing studies including his best-selling work OTC Distribution in Europe now in its eighth edition. James W Dudley is also a marketing strategy consultant to a number of the leading international consumer health companies in Europe. His latest study - Mail order and Internet Pharmacy in Europe the 2012 edition New Emerging Multichannel Structures is published by James Dudley Management in June 2012 details [email protected] web site Pharmacy, Europe, Mail order, Report, Market, Data, US, Sales, Pharmaceutical, Healthcare, Products, Germany, PBM, chains, Wholesaler, Drugstore, DocMorris, Retail, Channel, Consumer, Online, Internet, Chemist, e-commerce, James W Dudley, Author, Study, Self-medication, Non-prescription.